Business
Why South Africa’s New Draft Tax Laws Could Quietly Drain Your Savings
Millions of South Africans rely on unit trusts and collective investment schemes to secure their retirement, pay for their children’s education, or build a financial cushion for the future. But a new set of draft taxation laws could change the rules of the game, and not in favour of ordinary savers.
Legal experts have warned that proposals in the draft Taxation Laws Amendment Bill (TLAB) risk creating what they call a “stealth tax” on investors. It is a change that could leave people with capital gains tax bills even if they have not sold a single unit in their investment.
How the Current System Works
At the moment, when two funds merge, investors simply swap their units in one fund for units in the new one. This is tax neutral. Any capital gain is only triggered later, when an investor chooses to sell. This approach has allowed fund managers to streamline or consolidate portfolios without punishing those saving for the long term.
Imagine your retirement fund merges with another because managers want to reduce costs or align investment strategies. You still hold your investment; nothing has left your pocket, and you continue building value over time.
What Could Change
Under the proposed laws, this process would be treated as if you had sold your units, even though you remain invested. Investors could therefore face a capital gains tax liability without actually receiving any cash to cover it. Experts call this a “dry tax” because it forces investors to pay from their savings rather than from realised profit.
In practice, many people may have to sell part of their new units to pay the tax bill, shrinking their overall investment. That not only interrupts the principle of compounding but also discourages people from trusting these schemes as vehicles for long-term saving.
Wider Implications
The proposals do not stop there. The draft Bill removes other tax relief mechanisms, such as asset-for-share rollovers, and could even treat certain fund distributions as taxable capital gains. The concern is that Treasury has taken an overly broad approach, scrapping relief entirely rather than targeting cases where there may have been abuse.
This sweeping move has raised alarm in the industry. Lawyers and tax specialists note that Treasury’s own documents do not present evidence of widespread misuse of current rules in the context of collective investment schemes. Investors, they argue, are being punished for theoretical risks rather than real-world abuse.
Why It Matters to Ordinary South Africans
South Africa already struggles with a poor savings culture. Fewer than six percent of people can retire and maintain their standard of living. In such an environment, policies should be encouraging, not discouraging, long-term saving.
The fear is that these changes will undermine trust in retirement products at a time when financial resilience is already fragile. By introducing unexpected liabilities, the government risks making savings vehicles less attractive, just when they are most needed.
A Stealth Tax by Any Other Name
For now, these proposals remain in draft form, open for debate and comment. But the message from legal experts and financial advisers is clear: the changes could amount to stealth taxes that erode confidence in the very tools South Africans rely on to secure their financial futures.
Also read: Joburg Scraps Controversial CCTV Law After Public Outcry
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Source: Business Tech
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